An internal audit team of KLM Manufacturing recently toured the company’s receiv

Question

An internal audit team of KLM Manufacturing recently toured the company’s receiving, production, and warehousing facilities to obtain a better understanding of the day to day operations. Listed below are five items noted by the audit team during the tour:

1)A large quantity of incoming materials was sitting in a corner of the receiving area. The receiving supervisor indicated that the materials either had not yet been inspected or had failed inspection, and he was waiting for follow-up instructions.

2)The receiving function is partially automated. As packaged materials containing bar codes arrive, receiving clerks scan the content directly into the computer system. These materials are then moved directly to the production areas where they will be used.

3)Hazardous chemicals are used in the finishing process. Waste chemicals are stored in large barrels in a designated area of the production facility before being shipped for disposal.

4)One area of the warehouse contained a large quantity of goods that appeared to have been there for a long time. The packaging was dusty, looked old, and contained inventory tags from several physical inventories.

5)Physical security over the receiving, production, and warehousing facilities seems minimal. A tall fence surrounds the facilities, but procedures to restrict access to the facilities appear to be lacking.

REQUIRED:

Describe the potential risks associated with each of the five items

Discuss a control you would apply to avoid the risk

Explanation / Answer

Risks assosciated with the cases given in question:-

1. Receiving materials need to be inspected, if the same were not inspected and left over there they may result to theft, or obsolete. Finally the company sfferes from loss and whenever required the company may not hve proper stock to go with production process.

2. Here in the second case the recieveing department was also not fully automated,it was only partially automted with Bar coding system. So every produt or material recieved by them may not be properly noted or taken into account.

3. Hazrdous substances storing in a large quantities may result in explosion if thsy contain any explosive materials, thay may result in other diseses who work in a factory. So disposing them very frequently is must.

4. The quantity contained in ware house may become obsolete, deteriorayed, So that the company cannot use it for its manufacture. Also they are dusty and with old tags, so the Company has to made them into usable condition

5. Physical security over the receiving, production, and warehousing facilities seems minimal which results in theft, the company has to take propoer care to avoid this.

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